Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Describe the process of using the risk-adjusted discount rate
to calculate the
Net present value (NPV) is the excess of present value of cash inflows over the present value of cash outflows. The projects with positive NPV are generally accepted and negative NPV projects are rejected as per the NPV rule of capital budgeting.
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